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In Prairie Capital III, L.P. v. Double E Holding Corp. the Delaware Court of Chancery examined exclusive representations and integration clauses, omissions and exclusive remedies provisions.  The opinion notes:

  • Delaware law enforces clauses that identify the specific information on which a party has relied and which foreclose reliance on other information. A party cannot promise, in a clear integration clause of a negotiated agreement, that it will not rely on promises and representations outside of the agreement and then shirk its own bargain in favor of a “but we did rely on those other representations” fraudulent inducement claim.
  • If a party represents that it only relied on particular information, then that statement establishes the universe of information on which that party relied. Delaware law does not require magic words.
  • In an arms’ length contractual setting a party begins the negotiation process without any affirmative duty to speak. Therefore, any claim of fraud in an arms’ length setting necessarily depends on some form of representation. A fraud claim in that setting cannot start from an omission. For arms’ length counterparties, therefore, contractual provisions that identify the representations on which a party exclusively relied define the universe of information that is in play for purposes of a fraud claim. A party may use external sources of information to plead that a contractually identified fact was false or misleading, but a party cannot point to extra-contractual information and escape the contractual limitation by arguing that the extra-contractual information was incomplete.
  • Recasting an allegation as an omission should not enable a party to circumvent an agreed-upon informational definition. Representation-limiting language defines the universe of information on which the contracting party relied. If the contract says that the buyer only relied on the representations in the four corners of the agreement, then that is sufficient. The party may prove that the representations in the four corners of the agreement were false or materially misleading, but the party cannot claim that information it received outside of the agreement, which was not the subject of a contractual representation, contained material omissions.
  • The contract had an exclusive remedies provision that carved out fraud. According to the court, the exclusive remedies provision recognizes that a party is not limited to the indemnification framework when it sues for fraud, but the provision does not address the representations that a party can rely on in those circumstances. Other provisions in the stock purchase agreement, such as the exclusive representations clause, perform that function. The exclusive remedies provision does not alter the contractual universe of information on which a fraud-claim can be based.


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